CA Cigarette Tax Burns Business

$1-per-pack levy set for June 5 vote

SACRAMENTO, Calif. -- In less than three months, voters will cast their ballot for a referendum that on the surface sounds noble, but that opponents say will hurt tobacco merchants.

The state’s Proposition 29, known as the Tobacco Tax for Cancer Research Act, proposes to levy an additional $1 per pack of cigarettes, raising the state's cigarette excise tax to $1.87. The measure goes to vote on June 5 and is expected to generate more than $700 million annually, which would be siphoned for cancer research, smoking reduction programs and tobacco law enforcement.

The last time a cigarette tax was on the state ballot was in 2006, when voters narrowly defeated Proposition 86, which would have foisted an additional tax of $2.60 per pack of cigarettes.

“Prop. 29 is a new $735 million annual tax and spending mandate that creates an unaccountable government bureaucracy filled with political appointees--without allocating any money to pay down our $10-billion-plus budget deficit or to fund existing critical programs like education or public safety,” said Californians Against Out-Of-Control Taxes and Spending.

The nearly 3,000-member coalition includes the nation’s two largest cigarette makers, Altria and R.J. Reynolds, along with pro-business, taxpayer groups and law enforcement.

In separate requests for interviews, officials at both Atria and Reynolds offered the same statement, directing further questions to the coalition. “Working with this broad coalition, we will communicate the strong feeling of these partners about this flawed ballot measure,” they said in separate emails to Tobacco E-News.

Referendum critics face stiff opposition. The pitchman for Proposition 29 is seven-time Tour de France champion and cancer survivor Lance Armstrong, whose foundation last month kicked in $1.5 million to the “Yes on 29” campaign. And the pro-vote is backed by medical and anti-tobacco groups.

“We feel that Prop. 29 will save lives, stop kids from smoking and just may lead us to a cure,” Armstrong told reporters in mid-February.

Earlier this month, health activists sought to frame the debate as Big Tobacco profits vs. protecting children. “Big Tobacco will say and do anything to protect their profits--and apparently they have the deepest of pockets to pay for it,” said Richard Gray, president of the American Heart Association’s western states affiliate. “In just two weeks, they’ve given more than $12 million to the fight against research for cancer and heart disease and tobacco prevention. Yes on Prop. 29 will save lives, keep kids from smoking and just may help us find a cure.”

To counter the pro-vote, opponents of the excise tax are centering their arguments around the state economy. Specifically, imposing a consumer tax will further exacerbate a state already facing a multi-billion-dollar budget shortfall.

Prop. 29 critics are raising concerns about the harm a significant tax levy would have on the estimated 38,000 retailers that sell cigarettes and other tobacco products in California, and the nearly 37% total tobacco accounts for in their overall sales.

“If Prop. 29 passes, the higher tax will cause a decline in taxable cigarette sales in California, as people look for alternatives to avoid the higher tax, such as the black market, purchasing tobacco in other states, or buying cigarettes on the Internet or from Indian reservations,” said Ron Michelson, former board member of the International Premium Cigar & Pipe Retailers Association.

“This means that retailers, already struggling in our current economy, will suffer even more under this new tax.”